The plan of the world currency would have almost failed before the start. The fact that Paypal, Visa and Co. are saying goodbye to the Libra project is mainly due to Facebook itself. Getting involved with Zuckerberg doesn’t bring any luck at the moment.
In the end, Libra was able to avoid the final collapse – but Facebook’s ambitious cryptocurrency project is still severely hit. The plan for a stable currency, announced in June, had to assert itself for months against sharp criticism from supervisors, politicians and crypto fans. Yesterday before the Libra Alliance performed its formal founding act, a good quarter of the planned initially members left the project over a few days. Namely: Paypal, Visa, Mastercard, eBay, Mercado Pago, Stripe and Booking. Libra showed signs of disintegration before it even started.
The fact that the prominent Libra members no longer wanted to take part has a lot to do with the regulatory pressure on the project. But in the end, it’s all about the fact that Libra could never really emancipate itself from Facebook. And getting involved with Facebook doesn’t bring any luck.
The social network has long been under close observation by supervisors and politicians. They went through countless scandals and, to top it all off, is being dragged into the next US presidential election campaign – with Elizabeth Warren, a Democrat candidate is gaining momentum that it has declaredly been targeting Facebook. As can be seen from the live recording of a staff meeting, Zuckerberg himself has long since recognized this: A Warren presidency “would suck” for Facebook.
Anyone who does business with the Zuckerberg Group threatens to fall into this spiral.
The Libra people knew about this danger early on. Even when the project was presented, it was repeatedly stressed that Libra was utterly independent of the social network and would act autonomously. On the Libra supervisory bodies of the Swiss foundation, Facebook would only occupy one seat among many. “In June, David Marcus, who was the first head of Facebook’s Messenger department and then spent a year and a half preparing the Libra project in a leading manner, explained that: “We made an embarrassing effort to ensure that we had nothing to do with the management of this network”.
But the boundaries are already beginning to blur: Marcus now trades as Head of Calibra, the wallet for Libra offered by Facebook itself, with which the tech group initially participates in the project. But in public, he continues to act as a thought leader and evangelist of the entire project. On Twitter, he is the only prominent representative who provides reasonably detailed information about the functioning and principles of the project. He was the one who repeatedly confronted the critics before committees of both US parliamentary chambers.
Formally and on paper, Libra may indeed be independent – but the personal ties alone are numerous, as Wired recently pointed out. And in the end it’s also about perception: When politicians in Washington want to deal with the initiative, they invite Facebook founder Mark Zuckerberg – and not someone like Betrand Perez, managing director of the Libra Association. (Probably the most essential hearing will take place on October 23 in front of a committee of the House of Representatives chaired by Democrat and Libra opponent Maxine Waters).
It should not be forgotten that the idea for Libra was not born from the motivation to finally provide the world’s poor with bank-like services with a neutral blockchain currency – because this is only the PR spin. But that Libra is in a series of attempts with which Facebook wanted to gain a foothold in the payment market. Already between 2009 and 2013, Facebook tested a virtual currency in 15 countries with Facebook Credit. In 2015, a P2P payment option was launched as part of the Messenger hype. And in 2018, the Group piloted a payment service in WhatsApp, India.
None of these attempts was crowned with great success. Libra was a final – and particularly ambitious – attempt, relying on blockchain technology and with the in-itself smart idea of spreading the efforts and the entrepreneurial as well as the regulatory risk among more than one company.
But the legal and political risk is too high, especially for the providers already active in the financial industry among the 28 initially planned Libra members – this is now becoming apparent. Five of the seven companies that have withdrawn come from the industry: the payment services Paypal and Mercado Pago, the credit card providers Mastercard and Visa as well as the online payment service provider Stripe. Payment processors are subject to high regulatory requirements, be it in the prevention of money laundering, fraud or the enforcement of sanctions.
Should problems arise with Libra, three democratic senators wrote to Visa, Mastercard and Stripe last week, those Libra members who are subject to financial supervision would be liable. “Facebook seems to want the benefits of financial transactions without having to be regulated as a financial services provider,” the senators said. The Group is shifting “the risks and the need to create new compliance systems to the regulated members of the Libra Association like your company”. Those who take part can expect even stricter supervisory checks – not only with regard to Libra, but also in the core business of the payment companies. So it was clear: Libra may be an opportunity – but Facebook as a partner is too big a risk to get involved.
The senators’ letter was a blatant threat. And one that was effective.
The fact that after the departure of Paypal and Co., the founding event was still going on at all may be seen as a small success.
When Libra comes onto the market, the currency will create a new order in the crypto world. So only the expected volume is suitable to use the Libra Coin as back up for trading strategies. According to representatives of Blokkx Ltd in Malta, the project is eagerly awaited. Blokkx Ltd. invests, among other things in a trading system for blue-chip crypto assets. With the “Spreatx Coin”, a hybrid token is created that builds up an intrinsic value through the trading system and develops its value. We would like to have Libra in our basket of leading blue-chip coins together with Bitcoin and Ethereum to balance out the correlation fluctuations, backing up the “Spreatx Coin”.